Big Picture Portfolio Review

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Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Big Picture Portfolio Review

Post by summerjoy »

Thank you for reading this and offering your expertise. This is my first post, and we could use some collective wisdom here.

Emergency Fund: 6 months of expenses, as part of the total listed below.
Debt: No debt
Filing Status: MFJ
Tax Rate: 32% Federal upper rate, and 5% State (effective income tax rate for both is about 23%).
Midwest State
Age: Both around 50

Current allocation: 82% stocks and 18% bond and cash currently.
Desired allocation: 75% stocks and 25% bonds
Desired international allocation: 5%

Total portfolio: $3.4M
•54% in retirement accounts 46% in taxable accounts
(what are in the retirement accounts: 92% deferred accounts 401K and 8% Roth IRA)
•Emergency fund is part of the portfolio (cash)

SEPARATE ACCOUNT VIEW

Taxable at Vanguard
2% Cash Vanguard Cash Plus
1% VMFXX Vanguard Money Market 0.11% expense ratio
7% BND Vanguard Total Bond Mkt Index 0.03% expense ratio
33% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio

His 401K at Schwab
9% SWTSX Schwab Total Stock Mkt Index 0.03% expense ratio
14% SWPPX Schwab S&P 500 Index 0.02% expense ratio
1% VIGI Vanguard Intl Dividend Appreciation Index 0.05% expense ratio
1% VT Vanguard Total World Stock Index 0.07% expense ratio

Her 401K at T Rowe Price

6% VFIAX Vanguard 500 Index 0.04% expense ratio

His Roth at Vanguard

5% VUG Vanguard Growth Index 0.05% expense ratio

His Traditional at Vanguard
1% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio

Her Rollover IRA at Vanguard
2% VXUS Vanguard Total International Stock Index 0.08% expense ratio
8% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio
7% BND Vanguard Total Bond Mkt Index 0.03% expense ratio

Her Roth at Vanguard
3% VUG Vanguard Growth Index 0.05% expense ratio

100% Total $3.4M

COMBINED VIEW FROM ALL ACCOUNTS
  • % of portfolio/ Symbol / Name of ETF/Fund / Expense Ratio
    2% Cash Vanguard Cash Plus
    1% VMFXX Vanguard Money Market 0.11% expense ratio
    15% BND Vanguard Total Bond Mkt Index 0.03% expense ratio
    9% SWTSX Schwab Total Stock Mkt Index 0.03% expense ratio
    44% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio
    6% VFIAX Vanguard 500 Index 0.04% expense ratio
    14% SWPPX Schwab S&P 500 Index 0.02% expense ratio
    5% VUG Vanguard Growth Index 0.05% expense ratio
    2% VXUS Vanguard Total International Stock Index 0.08% expense ratio
    1% VIGI Vanguard Intl Dividend Appreciation Index 0.05% expense ratio
    1% VT Vanguard Total World Stock Index 0.07% expense ratio
100% Total $3.4M

ANOTHER CONDENSED VIEW is:
  • 4% Cash & Money Market 120,000
    15% Total Bond Market Index 500,000
    72% Total Stock Market Index 2,475,000
    4% Growth Stock Index 150,000
    5% International 155,000
100% $3.4M Total

Annual Contributions:

$25,000 H and W 401K accounts (includes employer matching)
$100,000 to 150,000 taxable (for retirement)

Available Funds:

1) Employer 401K From Charles Schwab: too many to choose from, wide open platform

2) Employer 401K T Row Price platform:
Many Target funds, PLUS

Symbol Name Expense ratio
LSIRX 1 CLEARBRIDGE MID CAP IS 0.79%
FSMLX 1 FRANKLIN SMALL CAP GROWTH R6 0.69%
JSCOX 1 JANUS HENDERSON SC VAL I 0.74%
MEIKX 1 MFS VALUE R6 0.45%
TCIEX 1 NUVEEN INTL EQ IDX R6 0.05%
TBCIX + 1 4 TRP BLUE CHIP GROWTH I 0.58%
TROIX + 1 3 4 TRP OVERSEAS STOCK I 0.67%
VFIAX 1 VANGUARD 500 INDEX ADMIRAL 0.04%
VSMAX 1 VANGUARD SMALL CAP INDEX ADM 0.05%
MPHQX 1 BLACKROCK TOTAL RETURN K 0.38%
VBTLX 1 VANGUARD TTL BOND MKT IDX ADM 0.05%
SVF-N 1 2 T ROWE PRICE STABLE VALUE N 0.20%

3) Self Manage: other than the 2 employer 401K accounts, everything else is in the Vanguard accounts (taxable, 401K Rollover, Roth IRA)

General investing style/ other information :
  • •We consider ourselves moderately aggressive, while we still have W-2 income coming, we can bear the market fluctuations. But we are starting to consider early retirement, perhaps in 5-8 years horizon.
    •Personally, not keen on international investing, and can probably use one ETF/Fund instead of 3 currently. John Bogle was not a big fan of international investing either. The general recommendation out there is to increase from 5% to at least 15-20% that we have not been doing but aware.
    **Annual expenses is about $150,000
    **No pension. Likely social security at retirement but currently not counting those.


Questions:
•It’s time for us to rebalance. And aware that it's currently out of our initial desired allocation: 75% stocks and 25% bond/cash. But before we do so, I would like to ask if 75% 25% allocation is overly aggressive for our age/situation? If so, what are your recommendations?
•We use the Empower Personal app, and the app has sector analysis and it indicates that 31% is invested in the Technology sector, is this a normal sector concentration for an index investor? If not, how to diversify further?
•My portfolio appears to be more in the Large Cap category. How do we make it more robust to include Mid and Small Caps? Or is that necessary at all?
•Anything you see that you can provide some insights or recommendations?

Thank you again.
Last edited by summerjoy on Tue May 14, 2024 6:09 am, edited 10 times in total.
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retired@50
Posts: 13416
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Mon May 13, 2024 4:20 pm Thank you for reading this and offering your expertise. This is my first post, ...
Welcome to the forum.

You should consider editing your post to adhere to the Asking Portfolio Questions format that we use in the forum.

It puts all the relevant information in place where regular readers of the forum are used to seeing it. You'll likely get many more responses if you go through this exercise.

No need to start a new thread, just edit your original post by using the pencil icon in the upper right corner.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
delamer
Posts: 17683
Joined: Tue Feb 08, 2011 5:13 pm

Re: Big Picture Portfolio Review

Post by delamer »

Regarding your first question, we don’t know much about your situation.

How much are you contributing to your retirement accounts annually? What are your expected expenses in retirement? Will you have other sources of income in retirement, like a pension or Social Security?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

retired@50 wrote: Mon May 13, 2024 5:25 pm
summerjoy wrote: Mon May 13, 2024 4:20 pm Thank you for reading this and offering your expertise. This is my first post, ...
Welcome to the forum.

You should consider editing your post to adhere to the Asking Portfolio Questions format that we use in the forum.

It puts all the relevant information in place where regular readers of the forum are used to seeing it. You'll likely get many more responses if you go through this exercise.

No need to start a new thread, just edit your original post by using the pencil icon in the upper right corner.

Regards,
Edited a bit. Please check the original post again. Thank you.
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

delamer wrote: Mon May 13, 2024 5:34 pm Regarding your first question, we don’t know much about your situation.

How much are you contributing to your retirement accounts annually? What are your expected expenses in retirement? Will you have other sources of income in retirement, like a pension or Social Security?
Annual 401K contributions is about $25,000 (employer matching included). additionally we contribute between $100K to $150K to taxable account, bonus depending, for retirement purposes. We first aim to maximize 401K employer matching, next is to accumulate more in the taxable accounts; in case if we wish to retire early, we can withdraw from the taxable account first before we reach the age to withdraw from retirement accounts.

If assume we spend the same level in retirement as compared to now, we need $150K a year. No pension, and currently we are not counting on social society income to be conservative.

I also added the information to the original post.
Last edited by summerjoy on Tue May 14, 2024 5:28 am, edited 1 time in total.
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retired@50
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Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Mon May 13, 2024 4:20 pm
  • % of portfolio/ Symbol / Name of ETF/Fund / Expense Ratio
    2% Cash Vanguard Cash Plus
    1% VMFXX Vanguard Money Market 0.11% expense ratio
    15% BND Vanguard Total Bond Mkt Index 0.03% expense ratio
    9% SWTSX Schwab Total Stock Mkt Index 0.03% expense ratio
    44% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio
    14% SWPPX Schwab S&P 500 Index 0.02% expense ratio
    6% VFIAX Vanguard 500 Index 0.04% expense ratio
    5% VUG Vanguard Growth Index 0.05% expense ratio
    2% VXUS Vanguard Total International Stock Index 0.08% expense ratio
    1% VIGI Vanguard Intl Dividend Appreciation Index 0.05% expense ratio
    1% VT Vanguard Total World Stock Index 0.07% expense ratio
100% Total $3.4M
...
3) Self Manage: other than the 2 employer 401K accounts, everything else is in the Vanguard accounts (taxable, 401K Rollover, Roth IRA)
...
•Anything you see that you can provide some insights or recommendations?

Thank you again.
This information above tells us what you own, but it doesn't tell us which mutual funds are in the various accounts.

Asset location mistakes are very common with portfolios we see in the forum. It's not possible to make suggestions for improvement without this information.

Consider reading the tax efficient fund placement wiki page for more details on this line of thinking.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
theorist
Posts: 1337
Joined: Sat Sep 28, 2019 11:39 am

Re: Big Picture Portfolio Review

Post by theorist »

summerjoy wrote: Mon May 13, 2024 4:20 pm
Questions:
•It’s time for us to rebalance. And aware that it's currently out of our initial desired allocation: 75% stocks and 25% bond/cash. But before we do so, I would like to ask if 75% 25% allocation is overly aggressive for our age/situation? If so, what are your recommendations?
•We use the Empower Personal app, and the app has sector analysis and it indicates that 31% is invested in the Technology sector, is this a normal sector concentration for an index investor? If not, how to diversify further?
•My portfolio appears to be more in the Large Cap category. How do we make it more robust to include Mid and Small Caps? Or is that necessary at all?
•Anything you see that you can provide some insights or recommendations?

Thank you again.
Regarding your questions, my two cents worth:

— as long as you’re happy with the possibility of losing 35-40% of your portfolio over an intermediate length period (lasting from months to a decade or more…), 75% in stocks is quite reasonable. And the high stock allocation has high expected returns (no guarantees). We are in the same age group and comparably allocated. The sooner you plan to retire, the more I’d think about carefully considering how much you should hold in less volatile assets.

— the U.S. total market is 29% in the tech sector by market cap. So if you basically intend to track the U.S. market, you’re fine. I personally hold a higher percentage of foreign stocks (about 33% of my stocks are international), and that keeps tech a bit lower.

— the US total market is - using Vanguards definitions (there are some fairly arbitrary conventions to choose in dividing between mid and large, or small and mid…) - 72% large cap, about 20% mid cap, and about 8% small cap. Having most of your stocks in large cap is then again not surprising. I tilt a little to mid and small, but not by too much (maybe 60/25/15).

You seem to be in very good shape! Including social security, you’re almost set to retire at will — though many of us enjoy work anyway and work well beyond the point where 4% withdrawal plus social security can support us comfortably. Good luck!
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

retired@50 wrote: Mon May 13, 2024 10:36 pm
summerjoy wrote: Mon May 13, 2024 4:20 pm
  • % of portfolio/ Symbol / Name of ETF/Fund / Expense Ratio
    2% Cash Vanguard Cash Plus
    1% VMFXX Vanguard Money Market 0.11% expense ratio
    15% BND Vanguard Total Bond Mkt Index 0.03% expense ratio
    9% SWTSX Schwab Total Stock Mkt Index 0.03% expense ratio
    44% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio
    14% SWPPX Schwab S&P 500 Index 0.02% expense ratio
    6% VFIAX Vanguard 500 Index 0.04% expense ratio
    5% VUG Vanguard Growth Index 0.05% expense ratio
    2% VXUS Vanguard Total International Stock Index 0.08% expense ratio
    1% VIGI Vanguard Intl Dividend Appreciation Index 0.05% expense ratio
    1% VT Vanguard Total World Stock Index 0.07% expense ratio
100% Total $3.4M
...
3) Self Manage: other than the 2 employer 401K accounts, everything else is in the Vanguard accounts (taxable, 401K Rollover, Roth IRA)
...
•Anything you see that you can provide some insights or recommendations?

Thank you again.
This information above tells us what you own, but it doesn't tell us which mutual funds are in the various accounts.

Asset location mistakes are very common with portfolios we see in the forum. It's not possible to make suggestions for improvement without this information.

Consider reading the tax efficient fund placement wiki page for more details on this line of thinking.

Regards,
I see your point. I was thinking about stock vs bond allocation, and did not consider tax efficiency. I did mention that 54% of total portfolio is in retirement accounts and 46% in taxable accounts but I did not break it down. I edited the original post again. Thank you.
User avatar
retired@50
Posts: 13416
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Location: Living in the U.S.A.

Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Mon May 13, 2024 4:20 pm Filing Status: MFJ
Tax Rate: 32% Federal upper rate, and 5% State (effective income tax rate for both is about 23%).
...
Current allocation: 82% stocks and 18% bond and cash currently.
Desired allocation: 75% stocks and 25% bonds
Desired international allocation: 5%
...
SEPARATE ACCOUNT VIEW[/b]
Taxable at Vanguard
2% Cash Vanguard Cash Plus
1% VMFXX Vanguard Money Market 0.11% expense ratio
7% BND Vanguard Total Bond Mkt Index 0.03% expense ratio

33% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio

His 401K at Schwab
9% SWTSX Schwab Total Stock Mkt Index 0.03% expense ratio
14% SWPPX Schwab S&P 500 Index 0.02% expense ratio
1% VIGI Vanguard Intl Dividend Appreciation Index 0.05% expense ratio
1% VT Vanguard Total World Stock Index 0.07% expense ratio

Her 401K at T Rowe Price

6% VFIAX Vanguard 500 Index 0.04% expense ratio

His Roth at Vanguard

5% VUG Vanguard Growth Index 0.05% expense ratio

His Traditional at Vanguard
1% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio

Her Rollover IRA at Vanguard
2% VXUS Vanguard Total International Stock Index 0.08% expense ratio
8% VTI Vanguard Total Stock Mkt Index 0.03% expense ratio
7% BND Vanguard Total Bond Mkt Index 0.03% expense ratio

Her Roth at Vanguard
3% VUG Vanguard Growth Index 0.05% expense ratio

100% Total $3.4M

•Anything you see that you can provide some insights or recommendations?
Now we're getting somewhere...
If you've reviewed the tax efficient fund placement link I posted earlier, you'll come to understand the following observations.

1. The blue funds above in the taxable account are creating additional income that isn't currently needed. You've got W-2 income, which is plenty, since you're able to save 6 figures in your taxable account during the year. So, you're paying 32% Federal tax on all that additional income coming from the bond fund and the cash holdings.

2. The fix for the problem mentioned in point #1 is to invest the cash and bond holdings in a tax efficient stock index fund. Stock index funds create less income, and further, the income they create is mostly qualified dividends, which are treated more kindly by the current tax code.

3. If you think this will leave you without an emergency fund in your taxable account, you're right. But there are ways to hold an emergency fund in your tax advantaged accounts. See this link for how: https://www.bogleheads.org/wiki/Placing ... ed_account

4. The Schwab funds (SWTSX & SWPPX) in the "His 401k" account are duplicative. All the stocks in the S&P 500 are also in the total stock market index fund. Since you were somewhat concerned about holding too much in tech/large companies, I'd consolidate into the total market fund SWTSX, which will add a touch more in the mid/small cap space.

5. I think the desired international allocation of 5% is too small to have much benefit. To actually get most of the benefit of international stock diversification you'll need to have 20% your equity in international stock (30% would get you the full benefit). Some reluctance here is normal, as many investors have a "home bias" but with a portfolio as large as yours, holding very little international equity seems like an unforced error to me.

6. To compensate for eliminating the bonds and cash in the taxable account, you should be adding some bond funds to one or more of the tax-deferred accounts like "Her Rollover" "His Traditional" and his and her 401ks. You can sell stock funds and buy bond funds in these accounts to accomplish this goal. No tax consequences when switching things around in these accounts.

7. You also seem concerned about your exposure to the technology sector, but you hold VUG in the Roth accounts. VUG is a technology heavy (56%) fund. The fix would be to sell VUG and buy a broad market index fund that is less concentrated in tech. Again, no tax consequences.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
bonesly
Posts: 1393
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Big Picture Portfolio Review

Post by bonesly »

summerjoy wrote: Mon May 13, 2024 4:20 pm 1) It’s time for us to rebalance. And aware that it's currently out of our initial desired allocation: 75% stocks and 25% bond/cash. But before we do so, I would like to ask if 75% 25% allocation is overly aggressive for our age/situation? If so, what are your recommendations?
2) We use the Empower Personal app, and the app has sector analysis and it indicates that 31% is invested in the Technology sector, is this a normal sector concentration for an index investor? If not, how to diversify further?
3) My portfolio appears to be more in the Large Cap category. How do we make it more robust to include Mid and Small Caps? Or is that necessary at all?
4) Anything you see that you can provide some insights or recommendations?
Just a quick reply for the questions above... I'll post an analysis of what you're holding and ways to get to your new allocation in a bit.

1) Anything from 50/50 to 80/20 is probably fine, but if you're questioning your AA, then take the Vanguard Investor Questionnaire and tailor the quiz results if you don't agree with the recommended AA it produces based on your personal responses. Take the quiz multiple times to see if it shifts around at all (presuming you slightly change one or more responses that you're ambivalent/unsure about) to get a range of suitable AAs tailored for your risk-tolerance.

2) I wouldn't worry too much about sector exposure unless you are holding funds that specifically tilt away from Total Market weightings. The top-10 funds of the Total US Stock Market (VTI) are pretty tech-heavy so a 31% weighting doesn't seem out of line and I don't see an intentional "tech-only" fund in your line up so not an issue in my view.

3) Large caps dominate the Total Stock Market. Mid/Small caps are only about ~20% of the total market weighting. I would not worry about including "more" mid/small caps unless you want to make a sector bet that doing so will outperform the Total Stock Market (and what is your rationale for such a bet?).

4) You could simplify as some of your holdings are overlapped with Total US Stock, Total Int'l Stock, and Total US Bond which are the only three funds you really need for a fully diversified portfolio. See the 3-Fund Portfolio. "Simplicity is the master key to financial success." -- John C. Bogle
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

retired@50 wrote: Tue May 14, 2024 11:12 am Now we're getting somewhere...
If you've reviewed the tax efficient fund placement link I posted earlier, you'll come to understand the following observations.

1. The blue funds above in the taxable account are creating additional income that isn't currently needed. You've got W-2 income, which is plenty, since you're able to save 6 figures in your taxable account during the year. So, you're paying 32% Federal tax on all that additional income coming from the bond fund and the cash holdings.

2. The fix for the problem mentioned in point #1 is to invest the cash and bond holdings in a tax efficient stock index fund. Stock index funds create less income, and further, the income they create is mostly qualified dividends, which are treated more kindly by the current tax code.

3. If you think this will leave you without an emergency fund in your taxable account, you're right. But there are ways to hold an emergency fund in your tax advantaged accounts. See this link for how: https://www.bogleheads.org/wiki/Placing ... ed_account

4. The Schwab funds (SWTSX & SWPPX) in the "His 401k" account are duplicative. All the stocks in the S&P 500 are also in the total stock market index fund. Since you were somewhat concerned about holding too much in tech/large companies, I'd consolidate into the total market fund SWTSX, which will add a touch more in the mid/small cap space.

5. I think the desired international allocation of 5% is too small to have much benefit. To actually get most of the benefit of international stock diversification you'll need to have 20% your equity in international stock (30% would get you the full benefit). Some reluctance here is normal, as many investors have a "home bias" but with a portfolio as large as yours, holding very little international equity seems like an unforced error to me.

6. To compensate for eliminating the bonds and cash in the taxable account, you should be adding some bond funds to one or more of the tax-deferred accounts like "Her Rollover" "His Traditional" and his and her 401ks. You can sell stock funds and buy bond funds in these accounts to accomplish this goal. No tax consequences when switching things around in these accounts.

7. You also seem concerned about your exposure to the technology sector, but you hold VUG in the Roth accounts. VUG is a technology heavy (56%) fund. The fix would be to sell VUG and buy a broad market index fund that is less concentrated in tech. Again, no tax consequences.
Thank you for your patience with me and helping me to get my first posting right.

#1 to #4 , #6, and #7 make a lot of sense! These tips we can implement right away and are easy to do so to be more tax efficient and shorten my fund listing.

We can also contribute more to the 401K plans and max those out to save some tax dollars today, but we may already have too much in 401K deferred plans, the reason why we don't. I was looking for a balance between taxable and deferred accounts.

#5 Any particular international fund/EFT you hold and would recommend? I'm not seeing strong international performance due to the strong dollar and great US performance but history may not predict the future I'm aware of. If you don't mind to providing more of your insight and elaborate on why the 'unforced error', it will be a great help.
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

theorist wrote: Tue May 14, 2024 12:16 am Regarding your questions, my two cents worth:

— as long as you’re happy with the possibility of losing 35-40% of your portfolio over an intermediate length period (lasting from months to a decade or more…), 75% in stocks is quite reasonable. And the high stock allocation has high expected returns (no guarantees). We are in the same age group and comparably allocated. The sooner you plan to retire, the more I’d think about carefully considering how much you should hold in less volatile assets.

— the U.S. total market is 29% in the tech sector by market cap. So if you basically intend to track the U.S. market, you’re fine. I personally hold a higher percentage of foreign stocks (about 33% of my stocks are international), and that keeps tech a bit lower.
so that means 25% of your total portfolio is international (0.75*0.33)? seems a large % to me. Which ones you buy?
theorist wrote: Tue May 14, 2024 12:16 am You seem to be in very good shape! Including social security, you’re almost set to retire at will — though many of us enjoy work anyway and work well beyond the point where 4% withdrawal plus social security can support us comfortably. Good luck!
We have two high schoolers that may still need their college expenses funded more (currently saved about 60% of their in-state college expenses). In-state/out of state tuition is a big gap and I am waiting to see how these eventually play out. While we feel fortunate, it does not feel like we are quite ready to retire. 3.4M today can fund about $136,000 annual expenses (this is all before tax I assume, so would still need to pay tax) using a 4% withdraw rate. We can spend less before we get social security in theory, but would prefer to use smaller withdraw rate % to be conservative.

Thank you for your reply.
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

bonesly wrote: Tue May 14, 2024 12:16 pm Just a quick reply for the questions above... I'll post an analysis of what you're holding and ways to get to your new allocation in a bit.
thanks in advance!
User avatar
retired@50
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Location: Living in the U.S.A.

Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Tue May 14, 2024 4:34 pm
retired@50 wrote: Tue May 14, 2024 11:12 am Now we're getting somewhere...
If you've reviewed the tax efficient fund placement link I posted earlier, you'll come to understand the following observations.

1. The blue funds above in the taxable account are creating additional income that isn't currently needed. You've got W-2 income, which is plenty, since you're able to save 6 figures in your taxable account during the year. So, you're paying 32% Federal tax on all that additional income coming from the bond fund and the cash holdings.

2. The fix for the problem mentioned in point #1 is to invest the cash and bond holdings in a tax efficient stock index fund. Stock index funds create less income, and further, the income they create is mostly qualified dividends, which are treated more kindly by the current tax code.

3. If you think this will leave you without an emergency fund in your taxable account, you're right. But there are ways to hold an emergency fund in your tax advantaged accounts. See this link for how: https://www.bogleheads.org/wiki/Placing ... ed_account

4. The Schwab funds (SWTSX & SWPPX) in the "His 401k" account are duplicative. All the stocks in the S&P 500 are also in the total stock market index fund. Since you were somewhat concerned about holding too much in tech/large companies, I'd consolidate into the total market fund SWTSX, which will add a touch more in the mid/small cap space.

5. I think the desired international allocation of 5% is too small to have much benefit. To actually get most of the benefit of international stock diversification you'll need to have 20% your equity in international stock (30% would get you the full benefit). Some reluctance here is normal, as many investors have a "home bias" but with a portfolio as large as yours, holding very little international equity seems like an unforced error to me.

6. To compensate for eliminating the bonds and cash in the taxable account, you should be adding some bond funds to one or more of the tax-deferred accounts like "Her Rollover" "His Traditional" and his and her 401ks. You can sell stock funds and buy bond funds in these accounts to accomplish this goal. No tax consequences when switching things around in these accounts.

7. You also seem concerned about your exposure to the technology sector, but you hold VUG in the Roth accounts. VUG is a technology heavy (56%) fund. The fix would be to sell VUG and buy a broad market index fund that is less concentrated in tech. Again, no tax consequences.
Thank you for your patience with me and helping me to get my first posting right.

#1 to #4 , #6, and #7 make a lot of sense! These tips we can implement right away and are easy to do so to be more tax efficient and shorten my fund listing.

We can also contribute more to the 401K plans and max those out to save some tax dollars today, but we may already have too much in 401K deferred plans, the reason why we don't. I was looking for a balance between taxable and deferred accounts.

#5 Any particular international fund/EFT you hold and would recommend? I'm not seeing strong international performance due to the strong dollar and great US performance but history may not predict the future I'm aware of. If you don't mind to providing more of your insight and elaborate on why the 'unforced error', it will be a great help.
By contributing more to (or maxing out) the 401k plans now, you'll be deferring 32% Federal and 5% state income tax. That's pretty valuable. :shock:

Since you mentioned your current age (50) and retirement in 5-8 years, you'll be retired long before RMDs begin for the tax-deferred accounts at 75 years old. With those years after the work stops, you'll be in a lower tax bracket (due to the lack of W-2 wages).

This will be the time (age 55-74) to perform annual partial Roth Conversions. You can move some money from traditional IRAs to Roth IRAs each year so you can avoid the huge RMD problem at 75.

You'll need to pay attention to some of the complexities to avoid other tax consequences, like factoring in Social Security income, and paying attention to IRMAA brackets for Medicare. It's a literal income tax minefield scattered through the years from pre-Medicare age 63 to RMD age 75. If you don't already do your own income tax preparation, now might be a good time to begin learning about this stuff.

As for international stock index funds, and which one to use... It depends on where you intend to hold the fund. In a taxable account I'd use VTMGX (or the sister ETF known as VEA) which is a Developed Markets stock index fund from Vanguard. It will have a good percentage of its dividends considered qualified, which can be helpful in a taxable account, plus you'll benefit from the foreign tax credit.

If you intend to hold the international stock fund in an IRA, Roth IRA, or 401k account, then any broadly diversified international stock index fund from Vanguard, Fidelity or Schwab would probably suffice. VTIAX from Vanguard, or FTIHX from Fidelity or SWISX from Schwab. No foreign tax credit if you use a retirement account.

As for the past performance stuff... You're right. It's been frustrating to people for a while that international stock hasn't performed better. There's no telling the future. The question should be "What if I'm wrong?" - what then? If the US market tanks and international doesn't, it could hurt you more than it needs to. One of the main principles of diversification is to admit you really don't know which asset class or sector will perform best, which is why so many investors hold all of them. With over $3 million, you need to think about spreading your risk and preserving what you've already built.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
WhyNotUs
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Re: Big Picture Portfolio Review

Post by WhyNotUs »

Does your state offer 529 plans? In some cases that can be a good way to save for college.

While you have some good input about tax efficiency, part of your question was about asset allocation. There will be many answers as different people assess risk and react to bear markets in different ways. If you have 15 years until retirement, one party will note that is likely to be enough time to recover before you are done with work, others could not sleep after watching a $3.4M portfolio become a $2.4M portfolio.

It seems that you are looking to reduce your equity position from 82 to 75%. A majority of people here would likely say that is prudent for a 50 year old. My personal assessment would be more like 70/30 or less as a next step but I would deal with the tax efficiency at the same time so that when I was done, I would be able to sit for a while. I would consider looking at some individual bonds or longer term cds if you have the energy to study the pros and cons. My brokered cds will give me comfort during the next inevitable retreat in the market.

Given your estimated budget and current holdings, you are well on your way to a well funded retirement. That would make me more defensive than your current allocation. YMMV.

I expect that you will hear from people older than you who are all in or almost all in on equities, many roads to Rome. I look for my blood pumping activities outside of investing :sharebeer

P.S. please take to heart having a tax strategy before making any changes. You need to think about this year, 15 years from now or when you retire, and also for when you are required to take RMDs.
I own the next hot stock- VTSAX
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summerjoy
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Re: Big Picture Portfolio Review

Post by summerjoy »

retired@50 wrote: Tue May 14, 2024 5:08 pm By contributing more to (or maxing out) the 401k plans now, you'll be deferring 32% Federal and 5% state income tax. That's pretty valuable. :shock:
Right. I also didn't want to push all the problems to the future, now that my retirement account % is more balanced with tax accounts, I can start thinking about tax efficiency.
retired@50 wrote: Tue May 14, 2024 5:08 pm Since you mentioned your current age (50) and retirement in 5-8 years, you'll be retired long before RMDs begin for the tax-deferred accounts at 75 years old. With those years after the work stops, you'll be in a lower tax bracket (due to the lack of W-2 wages).

This will be the time (age 55-74) to perform annual partial Roth Conversions. You can move some money from traditional IRAs to Roth IRAs each year so you can avoid the huge RMD problem at 75.

You'll need to pay attention to some of the complexities to avoid other tax consequences, like factoring in Social Security income, and paying attention to IRMAA brackets for Medicare. It's a literal income tax minefield scattered through the years from pre-Medicare age 63 to RMD age 75. If you don't already do your own income tax preparation, now might be a good time to begin learning about this stuff.
I own our income tax preparation, but I need to wrap my head around various tax rules to maximize Roth conversion, Medicare premium, RMD, and also ACA income limits if we retire early to control our health care costs. Is there a calculator out there that puts all these together nicely? Or I need to find places to educate myself and to come up with a withdraw plan with all these considerations. I enjoy learning in general just need to get the right information and understand how these rules interact with one another.

Many thanks again. A lot of good food for thoughts.
Topic Author
summerjoy
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Re: Big Picture Portfolio Review

Post by summerjoy »

WhyNotUs wrote: Tue May 14, 2024 5:26 pm Does your state offer 529 plans? In some cases that can be a good way to save for college.
Yes, all college money are saved in state 529 plans. we did not want to over contribute either, so we put enough there. Rest will come from our taxable accounts.
WhyNotUs wrote: Tue May 14, 2024 5:26 pm While you have some good input about tax efficiency, part of your question was about asset allocation. There will be many answers as different people assess risk and react to bear markets in different ways. If you have 15 years until retirement, one party will note that is likely to be enough time to recover before you are done with work, others could not sleep after watching a $3.4M portfolio become a $2.4M portfolio.

It seems that you are looking to reduce your equity position from 82 to 75%. A majority of people here would likely say that is prudent for a 50 year old. My personal assessment would be more like 70/30 or less as a next step but I would deal with the tax efficiency at the same time so that when I was done, I would be able to sit for a while. I would consider looking at some individual bonds or longer term cds if you have the energy to study the pros and cons. My brokered cds will give me comfort during the next inevitable retreat in the market.

Given your estimated budget and current holdings, you are well on your way to a well funded retirement. That would make me more defensive than your current allocation. YMMV.

I expect that you will hear from people older than you who are all in or almost all in on equities, many roads to Rome. I look for my blood pumping activities outside of investing :sharebeer
No panic sales yet for recent months/years, but I find myself logging into accounts more often to check on things. A sign to consider to potentially take less risks.
WhyNotUs wrote: Tue May 14, 2024 5:26 pm P.S. please take to heart having a tax strategy before making any changes. You need to think about this year, 15 years from now or when you retire, and also for when you are required to take RMDs.
Yeah. I need to learn what the rules are before I can implement a strategy...noted.

Thank you!
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retired@50
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Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Wed May 15, 2024 8:33 am
retired@50 wrote: Tue May 14, 2024 5:08 pm By contributing more to (or maxing out) the 401k plans now, you'll be deferring 32% Federal and 5% state income tax. That's pretty valuable. :shock:
Right. I also didn't want to push all the problems to the future, now that my retirement account % is more balanced with tax accounts, I can start thinking about tax efficiency.
retired@50 wrote: Tue May 14, 2024 5:08 pm Since you mentioned your current age (50) and retirement in 5-8 years, you'll be retired long before RMDs begin for the tax-deferred accounts at 75 years old. With those years after the work stops, you'll be in a lower tax bracket (due to the lack of W-2 wages).

This will be the time (age 55-74) to perform annual partial Roth Conversions. You can move some money from traditional IRAs to Roth IRAs each year so you can avoid the huge RMD problem at 75.

You'll need to pay attention to some of the complexities to avoid other tax consequences, like factoring in Social Security income, and paying attention to IRMAA brackets for Medicare. It's a literal income tax minefield scattered through the years from pre-Medicare age 63 to RMD age 75. If you don't already do your own income tax preparation, now might be a good time to begin learning about this stuff.
I own our income tax preparation, but I need to wrap my head around various tax rules to maximize Roth conversion, Medicare premium, RMD, and also ACA income limits if we retire early to control our health care costs. Is there a calculator out there that puts all these together nicely? Or I need to find places to educate myself and to come up with a withdraw plan with all these considerations. I enjoy learning in general just need to get the right information and understand how these rules interact with one another.

Many thanks again. A lot of good food for thoughts.
I'm happy to help...

See the "Using a spreadsheet" section of the Roth Conversion link above.

There is also a wiki page dedicated to tools and calculators here: https://www.bogleheads.org/wiki/Tools_and_calculators

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
bonesly
Posts: 1393
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Location: WA

Re: Big Picture Portfolio Review

Post by bonesly »

summerjoy wrote: Tue May 14, 2024 4:56 pm
bonesly wrote: Tue May 14, 2024 12:16 pm Just a quick reply for the questions above... I'll post an analysis of what you're holding and ways to get to your new allocation in a bit.
thanks in advance!
This is what I thin you have, and how I'd re-arrange it to simplify and adhere to Tax-Efficient Fund Placement.

Image

Taxable
Sell BND and deploy the all the resultant and existing cash into VTI. Holding bonds in a taxable account is not tax-efficient. Taxable accounts should preferably hold only stocks (and ones that pay qualified dividends rather than unqualified, so VTI qualifies while VXUS has been less less than tax-friendly of late).

His 401k
Coincidentally (or not?), this balance is $850K which exactly meets your target bond allocation of 25%. Sell everything and buy a Total Bond Market Fund (I've suggested VBTLX as you said fund choices were wide open, but you could use SWAGX since this account is at Schwab). Holding bonds in a tax-deferred account is the most tax-efficient placement.

His Roth IRA
Sell VUG and buy VTI and VXUS in the proportions suggested above to get your 5% of overall stocks in international. Holding only stocks in a tax-free account is the most tax-efficient placement. I will say that 5% international isn't really going to "move the needle" if international stocks out-perform the US at some future point, which seems likely from the chart below. If you really think the US will dominate international markets for the rest of both of your lifetimes, then just drop your international exposure to 0%, since 5% is too small to make a difference. The world market-cap weighting is 60% US and 40% int'l, although many Bogleheads with a US bias will go with 20% int'l. 10% is the minimum to make a difference.

Image

Her R/O IRA
Since your joint portfolio has the 5% international and 25% bond allocations met elsewhere, you can simplify Her R/O IRA to just hold VTI (sell VXUS and BND, then put proceeds into VTI).

Her Roth IRA
Swap from VUG to VTI. There's no need for dividend stock funds or growth stock funds, since VTI hold both growth and dividend stocks. The only reason to hold VUG or VIGI is if you are making a gamble on a particular sector outperforming the total market, which isn't the Boglehead philosophy; we suggest owning the total market in the market capitalization weighting.

The five account changes above reduce your total holdings from 15 down to 8, adheres to tax-efficient fund placement (bonds in tax-deferred, stocks in taxable and tax-free), and meets your overall joint allocation of 75/25, with 5% of stocks in int'l (75% x 5% = 3.75%). Just to reiterate, I'd consider boosting Int'l to 20% or just not bother (0%).

A template spreadsheet to do this kind of rebalancing drill is linked below.

Asset Allocation Sheet
AA Current and Proposed
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

retired@50 wrote: Wed May 15, 2024 9:19 am I'm happy to help...

See the "Using a spreadsheet" section of the Roth Conversion link above.

There is also a wiki page dedicated to tools and calculators here: https://www.bogleheads.org/wiki/Tools_and_calculators

Regards,
I will need to check them out. Many thanks again!
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

bonesly wrote: Wed May 15, 2024 12:00 pm
summerjoy wrote: Tue May 14, 2024 4:56 pm
bonesly wrote: Tue May 14, 2024 12:16 pm Just a quick reply for the questions above... I'll post an analysis of what you're holding and ways to get to your new allocation in a bit.
thanks in advance!
This is what I thin you have, and how I'd re-arrange it to simplify and adhere to Tax-Efficient Fund Placement.

Image

Taxable
Sell BND and deploy the all the resultant and existing cash into VTI. Holding bonds in a taxable account is not tax-efficient. Taxable accounts should preferably hold only stocks (and ones that pay qualified dividends rather than unqualified, so VTI qualifies while VXUS has been less less than tax-friendly of late).

His 401k
Coincidentally (or not?), this balance is $850K which exactly meets your target bond allocation of 25%. Sell everything and buy a Total Bond Market Fund (I've suggested VBTLX as you said fund choices were wide open, but you could use SWAGX since this account is at Schwab). Holding bonds in a tax-deferred account is the most tax-efficient placement.

His Roth IRA
Sell VUG and buy VTI and VXUS in the proportions suggested above to get your 5% of overall stocks in international. Holding only stocks in a tax-free account is the most tax-efficient placement. I will say that 5% international isn't really going to "move the needle" if international stocks out-perform the US at some future point, which seems likely from the chart below. If you really think the US will dominate international markets for the rest of both of your lifetimes, then just drop your international exposure to 0%, since 5% is too small to make a difference. The world market-cap weighting is 60% US and 40% int'l, although many Bogleheads with a US bias will go with 20% int'l. 10% is the minimum to make a difference.

Image

Her R/O IRA
Since your joint portfolio has the 5% international and 25% bond allocations met elsewhere, you can simplify Her R/O IRA to just hold VTI (sell VXUS and BND, then put proceeds into VTI).

Her Roth IRA
Swap from VUG to VTI. There's no need for dividend stock funds or growth stock funds, since VTI hold both growth and dividend stocks. The only reason to hold VUG or VIGI is if you are making a gamble on a particular sector outperforming the total market, which isn't the Boglehead philosophy; we suggest owning the total market in the market capitalization weighting.

The five account changes above reduce your total holdings from 15 down to 8, adheres to tax-efficient fund placement (bonds in tax-deferred, stocks in taxable and tax-free), and meets your overall joint allocation of 75/25, with 5% of stocks in int'l (75% x 5% = 3.75%). Just to reiterate, I'd consider boosting Int'l to 20% or just not bother (0%).

A template spreadsheet to do this kind of rebalancing drill is linked below.

Asset Allocation Sheet
AA Current and Proposed
This is so awesome. I didn’t think anyone would go to this length to help, down to the excel modeling level! I love excel…

I may consider 10 to 15% on international (baby step) and test the water a bit and adjust other %s to add to 100%. By the way, the google excel file is different from the screen above, I am seeing a listing of different funds in the google excel version. If you don’t mind to share it again, it will help. If you cannot find it, no worry I will use the one you provided and changed to the data displayed above.

Many thanks!
bonesly
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Re: Big Picture Portfolio Review

Post by bonesly »

summerjoy wrote: Wed May 15, 2024 8:15 pm I love excel…

By the way, the google excel file is different from the screen above, I am seeing a listing of different funds in the google excel version. If you don’t mind to share it again, it will help. If you cannot find it, no worry I will use the one you provided and changed to the data displayed above.
I don't typically save a new sheet for every analysis I do; the excel files I provide are templates for you to fill in. I just take a screenshot to post in responses. Subsequently, you'll have to change the data in the template to match the image (and you'll probably want to download the template to save in Excel rather than edit in Google Sheets).

If you're a fan of Excel, then you might also be interested in playing with the accumulation and withdrawal Monte Carlos I've made.

Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo

You'll need to download to your local machine and enable macros (required for the 1,000 random trials and results aggregation; Google Sheets doesn't support macros).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).

I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.
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retired@50
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Re: Big Picture Portfolio Review

Post by retired@50 »

summerjoy wrote: Wed May 15, 2024 8:15 pm ... I love excel
Who doesn't? Far and away the best thing Microsoft ever created.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
summerjoy
Posts: 12
Joined: Wed May 08, 2024 9:09 am

Re: Big Picture Portfolio Review

Post by summerjoy »

bonesly wrote: Thu May 16, 2024 10:20 am
If you're a fan of Excel, then you might also be interested in playing with the accumulation and withdrawal Monte Carlos I've made.

Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo

You'll need to download to your local machine and enable macros (required for the 1,000 random trials and results aggregation; Google Sheets doesn't support macros).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).

I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.
Super!! Thank you.
theorist
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Re: Big Picture Portfolio Review

Post by theorist »

summerjoy wrote: Tue May 14, 2024 4:54 pm
theorist wrote: Tue May 14, 2024 12:16 am Regarding your questions, my two cents worth:

— as long as you’re happy with the possibility of losing 35-40% of your portfolio over an intermediate length period (lasting from months to a decade or more…), 75% in stocks is quite reasonable. And the high stock allocation has high expected returns (no guarantees). We are in the same age group and comparably allocated. The sooner you plan to retire, the more I’d think about carefully considering how much you should hold in less volatile assets.

— the U.S. total market is 29% in the tech sector by market cap. So if you basically intend to track the U.S. market, you’re fine. I personally hold a higher percentage of foreign stocks (about 33% of my stocks are international), and that keeps tech a bit lower.
so that means 25% of your total portfolio is international (0.75*0.33)? seems a large % to me. Which ones you buy?
theorist wrote: Tue May 14, 2024 12:16 am You seem to be in very good shape! Including social security, you’re almost set to retire at will — though many of us enjoy work anyway and work well beyond the point where 4% withdrawal plus social security can support us comfortably. Good luck!
We have two high schoolers that may still need their college expenses funded more (currently saved about 60% of their in-state college expenses). In-state/out of state tuition is a big gap and I am waiting to see how these eventually play out. While we feel fortunate, it does not feel like we are quite ready to retire. 3.4M today can fund about $136,000 annual expenses (this is all before tax I assume, so would still need to pay tax) using a 4% withdraw rate. We can spend less before we get social security in theory, but would prefer to use smaller withdraw rate % to be conservative.

Thank you for your reply.
Roughly, yes, 25% of my portfolio is in international stocks, and about 1/3 of my stocks.

Global cap weight is 60% US / 40% International, roughly. (Maybe a smidgen higher US just now, it fluctuates over time.) So — I’m a little under allocated to international stocks if I was purely indexing according to my most rational reading of the index philosophy. I don’t take it that seriously, and think anywhere between 20-40% would be ok for me. I give some mental weight to valuations, which is perhaps why I settled in the top half of that range.

In terms of which ones I buy — well diversified, low ER mutual funds, including a healthy swab of international index funds.
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